US. Loans could drain U.S. retirement plans by $2.5 trillion
CHICAGO (Reuters) – Americans could dig a $2.5 trillion hole in the country’s retirement system as they fail to pay back loans taken from workplace retirement plans over the next 10 years, according to a new study from Deloitte Consulting.
The problem is called “leakage” – borrowing from a 401(k) plan without repaying the money or paying it back so slowly that it disrupts growth.
About 40 percent of people borrow from workplace plans. Most repay their loans within five years with interest, which is a typical requirement. But academic studies have found that about 10 percent default; often when laid off, which recalls the loan immediately. If you cannot repay the balance in cash, it counts as an early withdrawal, subject to taxes and penalties.
An additional problem is that two-thirds of people cope with that payback issue by pulling out the entire balance from their 401(k)s, according to Deloitte.
Read more reuters
